QUARTERLY MARKET UPDATE
June 2016
Trends in International Prices *
£ / metric tonne
Current price
Sugar Price Trends (GBP £/t)
£700
Trends in International Prices
New York No. 11 - Raw
% change % change % change
3 months 6 months 12 months
World sugar prices (both raw and white sugar) have extended the rally which started towards the final quarter of last year. This
is because of concerns over supply. The International Sugar Organisation (ISO) and other analysts believe that sugar has entered
a deficit market - with consumption exceeding production for the first time in six years. The El Nino event earlier in the year has
caused significant drought in sugar producing countries such as India, Australia and Thailand, serving to reduce supply.
Production from the EU for 2015/16 and 2016/17 is also below average levels. The recent strengthening of the Brazilian Real
against the US Dollar has also provided support for sugar.
London No. 5 - White
£600
EU - White
£500
New York (ICE) No. 11
futures (Raw sugar)
London (ICE) No. 5
futures (White sugar)
266.68
16%
17%
54%
£400
334.62
15%
21%
47%
335.26
8%
8%
11%
Recent World Sugar Prices (in US$/tonne)
£300
EU white sugar price **
New York No. 11 Raw
$525
London No. 5 White
$475
£200
$425
(Source: ICE/LIFFE(ICE)/EU Commission)
* prices have been converted into British Pounds Sterling - currency movements can affect
price levels
** EU white sugar price is for March 2016
$375
£100
$325
$275
Morever, India will move this year from being a sugar exporting country to an
importing one. Heavy rains in the centre-south of Brazil has caused problems
with cane harvesting. Congestion at Brazilian ports (e.g. Santos) has hindered
physical exports of raw sugar. Raw sugar is now trading at around 19¢/lb (it
even hit 20¢/lb on 16/06/2016) - an 83% increase since the six year low seen in
August 2015. Speculators are also playing a role in the price rises, with net long
positions, being at particularly high volumes. This suggests that the market
sees further upside for prices.
$225
White Sugar Premium
£ / metric tonne
Current
premium
Front term white
premium
67.93
% change % change % change
3 months 6 months 12 months
Source: ICE/LIFFE(ICE)
The white sugar premium is the difference between the white sugar (No.5 futures) price and the raw sugar (No. 11 futures)
price. It relates to the cost of refining and a margin allowable for the refiner. In reality it can be volatile due to reasons such as
refining capacity (excess capacity would result in a narrowing of the premium), global supply and demand for white sugar, stock
levels and currency movements.
£90
£80
£70
13.0%
38.3%
27.0%
£60
£50
(Source: ICE/LIFFE(ICE))
In nominal currency
USD$ / metric tonne
Front term white
premium
White Sugar Premium
White sugar premium (GBP £/t) since January 2012
£100
Current
premium
97.78
15.7%
32.8%
The premium fell to a six year low in February 2015 at £38/t. In 2016 it had risen to around £70/t, helped by strong demand
from China for white sugar. Lowering white sugar stocks in the EU have also helped increase the premium. An increased
premium helps the profitability of sugar refiners who should have seen their margins increase from a year ago.
£40
% change % change % change
3 months 6 months 12 months
£30
£20
17.3%
(Source: ICE/LIFFE(ICE))
White sugar premium £/t
World sugar balance (2009-10 to present) mt raw value
Global Sugar Balance
175
2014/15
2013/14
2012/13
163.9
171.2
171.4
172.0
170
90
Consumption
80
End stocks
165
70
60
160
50
Consumption
170.6
167.5
164.6
164.4
Stock
80.8
87.3
84.0
77.2
150
Stock % annual
consumption
47%
52%
51%
47%
145
155
40
30
20
(Source: International Sugar Organisation (ISO))
10
140
0
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
Stocks mt
Production
2015/16
mt p.a.
Metric tonnes m (raw
value)
Global Sugar Balance
100
Production
The most recent estimate from the International Sugar Organisation (ISO) predicts a global sugar
deficit for 2015/16 of 6.7mt (production of 163.9mt and consumption at 170.6mt). This is the first
deficit market since 2009/10. Stock levels, whilst at historically high levels of 81mt are falling.
Sugar prices are highly responsive to even small changes in supply. The market has responded
accordingly with prices rising significantly in 2016.
QUARTERLY MARKET UPDATE Page 2
June 2016
Trends in International Commodity prices
(Index Sep 2010=100)
Global Commodity Futures Pricesϯ
180
Global Commodity Futures Prices
ICE No. 11 Sugar (Raw)
Price (contract
specification)
ICE No. 11 Sugar (Raw)
US¢/lb
160
Current price
1 Year
3 Years
CBOT Maize
140
17.41
42%
6%
-36%
120
CBOT Wheat US¢/bsh
493.67
-5%
-28%
-26%
100
CBOT Maize US¢/bsh
425.31
17%
-36%
-38%
80
1151.38
19%
-24%
-16%
60
50.23
-21%
-51%
-57%
40
CBOT Soya beans
US¢/bsh
ICE Brent Crude
US$/barrel
CBOT Wheat
5 Years
CBOT Soya beans
ICE Brent Crude
Since the bottoming out of the oil price at around $30/barrel in January, oil and other
commodities have made a modest recovery, showing the first sustained prices rises since 2012.
Sugar has been the star performer - having risen nearly 50% in 2016 alone - driven by concerns
over supply. Weather concerns in the US about insufficient rainfall combined with wet
conditions in Europe have leant support to wheat and maize prices. However, the fundamental
position has not changed - global commodity stocks are still at record levels and 2016 is
expected to be the 4th consecutive record harvest globally, so it will be interesting to see how
much futher the recovery has to go. The recent rise in crude oil (to around $50/bbl) has also
supported crops used for biofuels such as sugar, maize and wheat.
(Source: AHDB)
ϯ Prices and changes over time are expressed in US$/US¢
Global Currencies
US Dollar US$
Price (contract
specification)
British Pound GBP£
Perfomance against the US Dollar
£0.6947
BRL 3.6030
$0.2775
-12%
-39%
-57%
Mexican Peso MXN
MXN18.55
$0.0539
-18%
-30%
-37%
Thai Baht THB
฿35.6800
$0.0280
-12%
-16%
-19%
Indian Rupee IND₹
₹ 67.1200
$0.0149
-7%
-11%
-34%
Brazilian Real BRL
Australian Dollar A$
$1.3808
$0.7242
1 Year
3 Years
5 Years
-3%
-6%
-10%
110
100
-5%
-22%
-33%
Chinese Yuan CHN¥
¥6.5798
$0.1520
-6%
-7%
-2%
Euro €
€0.8981
$1.1135
4%
-14%
-23%
(Source: US Federal Reserve website)
140
130
1 unit
nominal =
$1.4395
1 USD =
Five year performance of a selection of currencies
against the US Dollar (Index USD = 100 (Sep. 2010))
120
>100 = appreciation against
the USD and vice-versa
90
80
70
British Pound
Brazilian Real
60
Mexican Peso
Thai Dollar
Indian Rupee
Australian Dollar
Chinese Yuan
Euro
50
40
Global Currencies
The table and the graph clearly shows how the majority of international currencies that trade or
export sugar have fallen against the US Dollar (The British Pound is shown for reference). This
has significance because the majority of world's sugar is traded in US Dollars. When domestic
currencies fall against the dollar, the hard currency it receives purchases more local currency to
pay wages and other production costs. It therefore acts as an incentive to export. The strength
of the US Dollar is also a reason why prices for agricultural commodities have fallen. However,
the Brazilian Real has rallied in recent months as a result of impeachment proceedings against
the president, Dilma Rousseff. Brazil is the worlds largest sugar producer and the renewed
strength of the local currency has lent support to prices.